National Review: The GOP should take default off the table in debt-ceiling negotiations

posted at 10:31 am on January 15, 2013 by Allahpundit

They’re not saying Republicans should cave and raise the debt ceiling across the board, they’re saying the GOP should pass something that lets Treasury continue to borrow only for the purpose of paying interest owed to creditors. Missing those payments would mean true default and a potential meltdown for global markets, which is why Democrats keep talking up the scenario for negotiating leverage. If you take away that leverage by guaranteeing that debt obligations will be met then this becomes just like a more traditional government shutdown, with all non-interest federal spending frozen unless and until Obama agrees to cuts.

The House should pass a bill to redefine the debt limit so that it constrains primary spending but not debt service. Under this reform, a Treasury that had hit the statutory borrowing limit could continue to borrow what it needed exclusively for paying interest on the national debt and to roll over existing debt obligations, but it could not borrow for any other government spending until the limit had been increased. This would take default entirely off the table.

Other spending would have to be put off or reduced, based on the amount of revenue available at any given time, until the debt limit had been raised. Since debt service now amounts to roughly 8 percent of the budget while the deficit is well over 30 percent, this would mean very significant limits on spending until the debt limit had been increased — whether by a large, across-the-board reduction of remaining spending or a partial shutdown of the relevant government programs and services. Both parties would have a strong incentive to come to agreements that prevented the debt limit from being hit, at least for long.

This proposal would improve, rather than undermine, America’s creditworthiness, as it would both avert any possibility of default and compel a discussion about getting our government finances into order.

Is it only the prospect of default on debt obligations that’s keeping Democrats from negotiating? If you read Obama’s opening statement from yesterday’s presser, when he was talking about Congress not paying its bills, he didn’t dwell on the prospect of Treasury not being able to make interest payments. He focused on not being able to pay the troops, not being able to send out Social Security checks, and so on — exactly the type of traditional spending that would be frozen even under NR’s modified debt-ceiling standoff scenario. In other words, he’s already treating this more or less as a traditional government shutdown. And with good reason: If the GOP did categorically refuse to raise the ceiling, Treasury could still cover its interest payments with the new revenue it takes in every day. The Journal gamed that out a few days ago:

Under this approach, the government would pay bills on a day-by-day basis only when it had enough cash on hand from tax receipts and other revenue. On days when it was short of cash, it would postpone all payments until enough cash came in to make that day’s payments. Then it would put off the next day’s payments until enough cash came in to make those, and so on…

Officials appeared to have ruled out as unworkable the idea of prioritizing payments. The U.S. government makes 80 million payments a month. Figuring out which to pay first could be a logistical nightmare…

One area could get special consideration. The report left unanswered whether a delayed-payment regime would have included postponing interest payments on U.S. Treasury securities. Obama administration officials declined to comment on the matter.

Interest payments are delivered over a different system than other federal payments so Geithner could segregate those easily for special attention if need be, which is almost certainly what would happen in order to preserve America’s creditworthiness if it ever did come to this. All National Review is doing, really, is calling on the GOP to codify this scheme, instructing Treasury to prioritize debt obligations over other spending (and to engage in limited borrowing if necessary to meet those obligations) so that the world’s bondholders don’t have a panic attack while Congress and the White House try to reach a deal on cuts.

But that raises the question: If the goal here is to turn this into a traditional government shutdown, why not forget the debt ceiling and use the expiration of this year’s allotment of federal spending in March as an opportunity to shut down the government and extract cuts? Ed has an entire column up at The Week today making the case for that strategy. If you want (a) deep spending cuts, (b) leverage for Republicans in the form of a shutdown, and (c) minimal risk of a global financial panic that could drive the country into a deeper economic rut, use the expiration of this year’s continuing resolution on the budget to fight for reduced spending instead of the debt ceiling. More from Ed:

Of course, Republicans remember all too well that they attempted to force a budget victory in 1995 over Bill Clinton with a government shutdown, and ended up losing the political war. That case, however, differed from today in a couple of significant ways. The deficit was much smaller, although still politically potent, and Clinton had already started to triangulate after the 1994 midterm fiasco for Democrats. The budget standoff looked much less like a crisis than a public-relations stunt for the new Contract with America majority. In this case, the crisis is obvious and very potent politically, although not certain by any means to favor Republicans. It will take a great deal of effort to get the messaging started immediately for a March 27 standoff over budgeting for the rest of FY2013, an effort that Republicans haven’t done much in the last two weeks to push.

The GOP should forget the ghosts of 1995 and force the showdown over the real issue — out-of-control spending. At this point, after the beating Republicans took in November and the disarray after the New Years Day fiscal-cliff deal, they don’t have much to lose, especially by fighting on the high ground and forcing Democrats to defend inflated spending.

Supposedly Boehner and the House GOP leadership are already trying to steer the caucus towards taking a stand on the continuing resolution rather than the debt ceiling. But even if it happens and the government shuts down for a few days, is there any reason to think they won’t cave? What kind of cuts are they expecting from a Democratic president and Democratic Senate? A shutdown is always risky, but in ’95 the GOP was at least coming off a huge midterm win the year before with public opinion presumably on their side. As it is, Gabe Malor sees a replay of the fiscal cliff debacle, where tea-party congressmen vote no and the rest of the caucus gets nervous about a public backlash and votes with Democrats to pass something lame.

Exit question: Which option does the “let it burn” crowd favor here? The point of LIB is to force Democrats to fully own the fiscal mess they’ve made and to force voters to live with the consequences of electing those Democrats, so presumably you guys want the GOP to vote “present” on the debt ceiling and let the Dems keep borrowing until the whole budgetary facade finally collapses, yes?

They’re not saying Republicans should cave and raise the debt ceiling across the board, they’re saying the GOP should pass something that lets Treasury continue to borrow only for the purpose of paying interest owed to creditors.

Exit question: Which option does the “let it burn” crowd favor here? The point of LIB is to force Democrats to fully own the fiscal mess they’ve made and to force voters to live with the consequences of electing those Democrats, so presumably you guys want the GOP to vote “present” on the debt ceiling and let the Dems keep borrowing until the whole budgetary facade finally collapses, yes?

The fact that there isn’t a consensus on this shows how “Let It Burn” is about as insightful a slogan as “Change We Can Believe In.”

I think Gabriel Malor’s right. The safe red district GOP house members will refuse a deal, and the rest will join with the Dems to pass something worse than it would have been if the GOP could at least agree on something themselves.

I go back and forth about which outcome is better. I want meaningful spending cuts and entitlement reform but I don’t want Obama to get credit for them, the way Clinton gets all the credit for the way the GOP House capped spending increases in the 90s. So I guess I’m fine with the GOP caving on this. Let people see what it’s like when Obama gets what he wants.

Default is not an issue. Interest to creditors can continue to be paid using revenue that will still be coming into the Treasury. This idea of default is yet another successful act of the Left to obscure what is really going on.

Exit question: Which option does the “let it burn” crowd favor here? The point of LIB is to force Democrats to fully own the fiscal mess they’ve made and to force voters to live with the consequences of electing those Democrats, so presumably you guys want the GOP to vote “present” on the debt ceiling and let the Dems keep borrowing until the whole budgetary facade finally collapses, yes?

I agree. There is nothing that will make Republicans look good politically. There is no fix to a $16 trillion dollar debt. How could there be?

Default is not an issue. Interest to creditors can continue to be paid using revenue that will still be coming into the Treasury. This idea of default is yet another successful act of the Left to obscure what is really going on.

Bitter Clinger on January 15, 2013 at 10:41 AM

Exactly. Make it clear that we will *shut down* the government before we will *default.*

Exit question: Which option does the “let it burn” crowd favor here? The point of LIB is to force Democrats to fully own the fiscal mess they’ve made and to force voters to live with the consequences of electing those Democrats, so presumably you guys want the GOP to vote “present” on the debt ceiling and let the Dems keep borrowing until the whole budgetary facade finally collapses, yes?

Personally as someone onboard the Let It Burn bandwagon, unless the GOP can get real spending cuts out of the Dems in the debt ceiling negotiations, I’d raise it(by no more than $2 trillion though) and make it very clear they own the economy.

Elections have consequences and without control of the Senate or White House, there’s not much the Republicans can do unless they’re willing to go all the way with either refusing to raise the debt ceiling or demanding a budget instead of another continuing resolution.

LONDON (AP) — The United States could lose its top credit rating for the second time from a leading credit agency if there’s a delay in raising the country’s debt ceiling, Fitch Ratings warned Tuesday…

How about Boehner and his crew go ahead and cave and then bend over. Don’t expect Obama to buy you dinner and a movie or call you the next day.

Sick and tired of Republicans letting the Dems win the war because they win the narrative. Get out in front of the cameras every day and tell the American people that if we default, if we don’t pay our vets or social security recipients then that is a decision the Obama administration would have made.

Present your plan on what a government shutdown would look like, who would get paid (i.e. vets) and who wouldn’t (i.e. EPA, Dept of Education…need I name more?).

The interest on the debt is $ 246 billions a year… So Congress can pass a bill in this amount… Now the question is how are you going to fund the remaining spending of $ 3.5 trillions a year when the tax revenues is $ 2.6 trillions a year… The answer is we cannot under any possible scenario but we need start somewhere… First we need to make deep cuts in the welfare programs and the departments related to them (welfare check, housing aid, food stamps, etc…) which account for $ 500 billions in total per year… Second we need to cut by 80% the department of Energy, 50% department Education, 90% the EPA, 30% department of Agriculture… Third we need to raise the social security and medicare age benefits to 69… Foruth we need to cut Medicaid and CHIP by at least 20% and mainly on the able body adults who are at working age ( 16-69)…

Default is not an issue. Interest to creditors can continue to be paid using revenue that will still be coming into the Treasury. This idea of default is yet another successful act of the Left to obscure what is really going on.

Bitter Clinger on January 15, 2013 at 10:41 AM

But Obama has said clearly in the past that he’ll default on interest payments on the debt before not sending out entitlement checks. In other words, he’s telegraphed his intention to default years ago. Of course he’ll blame it on the Republicans.

There is no relationship between the debt limit and paying our bills. The only reason to raise the debt limit is to borrow more money to support even more spending. The arguments coming from DC don’t even make sense.

It would be like me going to my bank and telling them that without increasing my line of credit I couldn’t pay the mortgage, buy food, buy gas, pay utilities, etc. they would laugh and tell me to lower my spending to match my salary.

There is no need to make any kind of deal with Obama about raising the debt limit. If the GOP wants to cut spending the best way to do so is to refuse to raise the debt ceiling. Obama woud have no choice but to spend not a dime more than the Treasury receives in taxes each month. And here the 14th Amendment actually applies. Interest on the debt must be paid first.

It’s sad to see National Review punt on the deficit issue, too, just like the Democrats and the so-called Republican leadership. What they are proposing is more accounting tricks, and dancing around the real issue of excessive spending. They, as the whole of Washington DC, continue to pretend that spending is not the problem.

But Obama has said clearly in the past that he’ll default on interest payments on the debt before not sending out entitlement checks. In other words, he’s telegraphed his intention to default years ago. Of course he’ll blame it on the Republicans.

Paul-Cincy on January 15, 2013 at 10:59 AM

That, of course, is a violation of the Constitution. I know, I know. Obama only cares about the Constitution if it can be parsed to give him more power.

But this is a prime example of the impotence of the GOP messaging apparatus (if one even exists).

Agency Total (Billions of Dollars)
Total 3,803
Department of Health and Human Services including Medicare and Medicaid 940.9
Social Security Administration 882.7
Department of Defense including Overseas Contingency Operations 672.9
Net interest 246
Department of Agriculture 154.5
Department of Veterans Affairs 139.7
Department of the Treasury 110.3
Department of Labor 101.7
Department of Transportation 98.5
Department of Education 71.9
Department of State and Other International Programs 59.5
Department of Homeland Security 55.4
National Intelligence Program 52.6
Department of Housing and Urban Development 46.3
Department of Justice 36.5
Department of Energy 35
Other spending 29.5
National Aeronautics and Space Administration 17.8
Department of the Interior 13.5
Department of Commerce 9
Environmental Protection Agency 8.9
Army Corps of Engineers Civil Works 8.2
National Science Foundation 7.5
Disaster costs 2
Small Business Administration 1.4
Corporation for National and Community Service 1.1

Spending is out of control and one day our kids are going to wake up to a bankrupt government … civil unrest in the streets … and quite possibly a dictator.

Why should we push all that on to them while we stand by in luxury and comfort?

Let it burn – take on the debt ceiling and take on any new spending. If we’re going to burn this nation down – let’s do it on our watch so we have a possiblity of FIXING things before our kids hit the wall.

National Review has gone from the top of my favorite political websites to no longer being a “favorite” at all. Rather than strategizing how to win, they now seem to focus on accommodation. Their point of view no longer represents mine. They have lost Mark Levin and Mark Steyn has reduced his contributions significantly.
We seem to have not only lost our elected political leaders but are in the process of losing our “conservative intellectuals” as well. The closer they get to Washington the more likely they are to lose their spine and their conservative values.

Agency Total (Billions of Dollars)
Total 3,803
Department of Health and Human Services including Medicare and Medicaid 940.9
Social Security Administration 882.7
Department of Defense including Overseas Contingency Operations 672.9
Net interest 246Department of Agriculture 154.5
Department of Veterans Affairs 139.7
Department of the Treasury 110.3Department of Labor 101.7Department of Transportation 98.5Department of Education 71.9Department of State and Other International Programs 59.5
Department of Homeland Security 55.4National Intelligence Program 52.6Department of Housing and Urban Development 46.3
Department of Justice 36.5Department of Energy 35Other spending 29.5
National Aeronautics and Space Administration 17.8
Department of the Interior 13.5
Department of Commerce 9Environmental Protection Agency 8.9
Army Corps of Engineers Civil Works 8.2
National Science Foundation 7.5
Disaster costs 2
Small Business Administration 1.4Corporation for National and Community Service 1.1

Dem strategy, obviously:
1. Spend astronomical amounts of money, borrowing from China if necessary.
2. When debt ceiling is approached, scream that we’ll not be able to pay our “obligations” if the it isn’t raised.
3. GOP caves and allows the ceiling to be raised. Crisis averted.
4. Repeat Steps 1-3 forever.

Wait a minute, I thought the law was that the government had to pay its creditors first anyway. There’d never be a default as long as tax income was coming in.
Its that other government services would be shut down, and outgoing benefit payments would stop.

Wait a minute, I thought the law was that the government had to pay its creditors first anyway. There’d never be a default as long as tax income was coming in.
Its that other government services would be shut down, and outgoing benefit payments would stop.

Finally, somebody is making sense. If you take “default” out of the equation then disallowing new, or current funding is a viable option and all of Obama’s rants fall helplessly to the ground. We must pay the interest to avoid default, but we can concurrently stop or discontinue expenditures that contribute to the debt. On the other hand, you could “hang tough” and again cut off your nose to spite your face but that would just result in more profuse bleeding.

Do you really want a total cut of the “National Intelligence Program”? This includes the CIA and NSA… I think you can cut may be up to 5% of their total budget but more that it will hurt our national security. In my opinion the Defense Department, the National Intelligence Department, the Justice Department, and the Home Land Security department must not be cut more than 5% each…

The president and his minions are between a rock and a hard place because there’s a limit to how many last chances to control ourselves we have and for the GOP freedom is just another word for nothing left to lose

Trade a one time debt ceiling raise for a budget and a balanced budget amendment.

Squeeze hard and long, in fact don’t let go until the papers are signed, no matter how long it takes, no matter what happens.

The rupubs have three main choices as I see it. 1 is LIB and vote present – give O all he wants. With this you have to hope we can limit damage to America while the government collapses. But the government has gotten so big that it might just take the whole country with it. Second is continue with what they are doing – mishmash around-kick the can down the road etc. End result same as number one but will take all the blame in the press and among the LIV. Third is fight for what is right with all your might. Get spending cuts 1 for 1 for every debt ceiling dollar raised. I am talking this year – not in ten years. They will not get it but you need to have a starting point. Get as many actual cuts as you can. Then with the CR do the same thing. They should have done this for the last 2 years and we would have a balanced budget by now. If the Government shuts down and just makes essential payments(I know – define essential) you in essence have a balanced budget. I find this highly unlikely with the current crop of repubs.
Question. With a continuing resolution, if it not a new budget, how can spending change from the last passed budget? If it then becomes a new budget that was not voted on – is it illegally passing a budget?

Compromising will get us nowhere. Let Hussein own the economy, and Socialism will inevitably fail. Then, next election cycle and beyond, run strong Conservatives who stand for bold colors and attack the failures of Socialism. The current GOP strategy of pastel moderation and compromising is only playing into Democrat hands.

I believe there is a fundamental imperative that must be acknowledged before there can be any useful action by the GOP and that is: Obama will never yield to the reduction of any social or medical program, period. Therefore, there is only one affective course of action for the GOP and it is, political Armageddon, then sort through the rubble and try to rebuild.

Exit question: Which option does the “let it burn” crowd favor here? The point of LIB is to force Democrats to fully own the fiscal mess they’ve made and to force voters to live with the consequences of electing those Democrats, so presumably you guys want the GOP to vote “present” on the debt ceiling and let the Dems keep borrowing until the whole budgetary facade finally collapses, yes?

The first stage is Denial

And it applies to the enablers (RINO’s, AP, National Journal, etc) as well as the Spenders (SCOAMF, liberals, RINO’s, etc)

The Federal Reserve is currently BUYING all UST’s 10 YR and longer in duration to keep debt servicing costs from becoming hyper-inflationary.

The Federal Reserve is ALSO buying effectively all Mortgage Backed Securities as a means of preventing another 30% leg DOWN in housing prices.

Take the Federal Reserve’s QE off the table (and they are now talking about doing just that) and this whole facade crumbles overnight.

The correct answer is what is called Tough Love.

and that requires an INTERVENTION

You DO NOT get to vote ‘present’ at an intervention – that path means you will keep enabling the problem.

You vote “NO!” on raising the debt ceiling.

You vote “NO!” on a continuing resolution.

You MAKE the SCOAMF, the liberals, the MSM, RINO’s, etc FACE THE PROBLEM NOW !!!

Every additional day you put it off, the problem is going to be exponentially worse.

Seriously, AP, have you never been involved first hand in an intervention?

The U.S. government makes 80 million payments a month. Figuring out which to pay first could be a logistical nightmare…

As soon as practical, all payments/expenditures need to be classified on a tiered prioritization scheme.

Mandatory, ‘servicing the debt’ payments would be Class A, and never touched.

But, Classes B, C, and D payments would be lower priority expenditures and during these kind of situations Treasury can cut off payment:
i.e., All Class D payments are cancelled. If the situation isn’t resolved by (fill in date), Class C payments will be cancelled.
Et cetera.

BS…. close the government down! EPA, Education, and get rid of programs that promote liberal hogwash. Funding the arts is a good example. The GOP has no clue and no balls. Rome is burning and they are worried about their jobs, nothing more. Give me the budget, I’ll make some cuts!

But that raises the question: If the goal here is to turn this into a traditional government shutdown, why not forget the debt ceiling and use the expiration of this year’s allotment of federal spending in March as an opportunity to shut down the government and extract cuts?

The debt ceiling with any type of appropriations legislation in effect allows, by law, the prioritization of certain work by the Executive branch, like, say, having Treasury show up for work daily to pay the interest on the debt.

By law, letting appropriations legislation expire does not allow Treasury to show up at work daily to pay the interest on the debt.

Of course, the Executive might request people to show up for work with payments delayed, with the promise to convince Congress to pay the debts accrued. But does the President have the authority to do that, and why should the Congress expect the President, especially this President, to do that?

Is there a reason the House couldn’t pass a debt ceiling increase attached to a reasonable budget proposal? If the budget proposal includes huge cuts it will be sensationalized by the media. But if you can get $100 B in cuts this year (or just remove the 2009 stimulus funds from the budget) and a step toward entitlement reform then that is a step in the right direction.

The left has been slowly eroding certain aspects of our country by plaing the long game for years now. While we are getting a late start, it is time for the right to look at its issues the same way.

If we raise the ceiling until the end of March, I don’t see why we cannot pass a budget with the further debt ceiling increase in it and call the Senate to pass theirs. If the Senate passes nothing then tell the public you cannot negotiate the differences when the Senate has nothing. The CR and the ceiling run out and the next step is for the Senate to act so every day the GOP keeps asking Harry Reid what he’s doing. If the Senate passes a budget, that is a victory which the GOP can claim they forced them into and any spending cut you can negotiate with them will be a further victory.

Of course, Republicans remember all too well that they attempted to force a budget victory in 1995 over Bill Clinton with a government shutdown, and ended up losing the political war.

Contract with America was a very Conservative Message.

But the GOP quickly abandoned it after they won the 94 elections using it. The American People saw this an punished the Republicans for abandoning the Contract. That is what hurt the GOP it had nothing to do with the Debt Celling Debate.

The result of this fight though was an actual balanced budget. America actually took in more than it paid out for four years. Only GOPe reactionaries would consider this a political loss. It proves smaller spending is possible with great results. It is a political loss because the GOPe made it thus. The GOPe hated the Contract and did all in their power to make it a loser so Conservatives would not win in 1996 they cared less that meant Clinton would get a second term. They eventually forced Newt out of Congress a complete disgrace after he gave us the House. The GOPe is the problem.

The last time around they downgraded the nation’s credit rating from AAA to AA what a bunch of hogwash! Anyone buying T-bills now would have to be an idiot to think that they will get their money back.

I don’t want the Federal government to have a credit limit at all. I don’t want anyone in the world to ever loan the US Government any more money. (I’m not sure anyone is any more, it’s likely that 100% of the debt is being bought by the fed)

Go ahead and default, yeah I know they don’t have to and Obama will do it in a fit of rage…OK I’m good with that. This isn’t about winning a political battle, it’s about whether the country exists at all in 10 years; the odds are overwhelmingly against. Going for broke is our only chance.